Oil & Gas Boom 2014: A Withering Regulatory Assault

While the Obama Administration frequently touts its commitment to an “all of the above” energy policy, its ongoing devotion to handing out massive subsidies (wind, solar) and demand quotas (ethanol, biofuels) to some forms of energy while ramping up taxes and heavy-handed regulations on others reveals this commitment to be highly qualified and selectively applied. Nowhere is the downside of this picking-and-choosing approach to energy policy more evident than as it relates to the oil and gas industry, upon which the Administration’s ongoing withering regulatory assault continued last week on several fronts.

First, on March 25, the Environmental Protection Agency (EPA), working in concert with the Army Corps of Engineers, issued its new “Waters of the United States” proposed regulation, which EPA claims would “clarify” the scope of its regulatory authority under the Clean Water Act (CWA). Naturally, in “clarifying” its authority, EPA – as it invariably does – seeks to vastly expand said authority.

The proposed rule would take EPA’s current statutory authority under the CWA to regulate “navigable waters” and “clarify” it in a way that would allow it to regulate any connected or adjacent wetlands, streams, creeks, ditches or ponds, including those that are intermittent, seasonal, man-made or “ephemeral”, whatever that means. EPA protested that concerns expressed by the various industries the rule would impact were “overblown”, which is what EPA always does before going about ensuring that such concerns invariably are either met or exceeded by the ultimate impacts. This is how EPA has functioned since its inception, in administrations of both parties, and no one should expect it to change anytime soon. Or ever, for that matter – it’s the nature of this bureaucracy.

EPA Administrator Gina McCarthy quickly moved to reassure the Agricultural industry that their existing exemptions under the CWA would not be impacted, a statement no one really believed. Conversely, no such assurances were forthcoming related to the oil and gas or other energy industries, an omission which surprised no one.

This proposed rule is the third effort in recent years to expand EPA authority in this area. There were repeated efforts to pass legislation through congress during the early part of President Obama’s first term, all of which failed. More recently, the EPA issued a guidance document under the statute that it decided to withdraw in response to strong protests by affected industries. So one must assume the agency hopes that this third attempt to regulate your local drainage ditch or stock pond will be the charm.

Not to be outdone, on March 28 the U.S. Fish and Wildlife Service announced its decision to list the Lesser Prairie Chicken as “threatened” under the Endangered Species Act. While this designation is a step below the “endangered” status under the ESA, and theoretically provides regulators and affected parties more flexibility in determining ways to go about protecting this bird, the potential negative impacts of the listing on vast swaths of five different states is very significant.

The oil and gas industry and other affected parties were naturally disappointed by the decision, given that companies, ranchers and other landowners had already agreed to set aside more than 3 million acres of land as habitat for the chicken under the Five State Conservation Plan that is sponsored by the states of Texas, Oklahoma, Colorado, New Mexico and Kansas. The decision ultimately becomes another victory for radical groups like the Center for Biological Diversity (CBD), which have been allowed to abuse this statute and circumvent the normal regulatory and administrative processes with their “Sue and Settle” racket I detailed for readers in this space last year.

In fact, Oklahoma Attorney General Scott Pruitt challenged this spurious and really un-American practice in a lawsuit he filed in federal court earlier in March. If there is any justice remaining in this country’s legal system, he will prevail. Of course, any ultimate disposition of that case will come years in the future. In the meantime, CBD will have free reign to continue collecting millions of dollars from the federal government at the expense of taxpayers and consumers.

Also on March 28, the White House released an outline of its long-awaited Climate Action Plan Strategy to Reduce Methane Emissions. The strategy would initiate a process whose ultimate goal would be EPA regulation of methane emissions at several points along the upstream, midstream and downstream supply chain for natural gas, as well as the coal industry and landfills.

The process would begin with the solicitation of input from affected industries through a series of technical white papers, followed by bureaucratic determination of possible actions that everyone expects would result in heavy-handed regulation of the natural gas industry, which has long been the goal at EPA. The strategy document also includes proposed updated standards under the Bureau of Land Management’s Onshore Order #9, which governs venting and flaring of natural gas in oilfield operations on federal lands.

Interestingly, the strategy in no way contemplates mandatory regulation of farm animal flatulence and other agricultural industry emissions, which are the largest single source of methane emissions in the United States. Then again, if EPA were to regulate flatulence from cows and sheep, it might then attempt to extend its authority to similar human emissions, and nobody with any fiber in their diet wants to see that happen.

Coincidentally, on April 1, the House Budget Committee under Chairman Paul Ryan issued its proposed 2015 budget.

“The President has installed a heavy-handed compliance culture dependent on regulations, favorable tax treatment and spending on administration-favored constituencies. This administration has proposed more economically significant regulations in four years than previous administrations have in the past 15 years combined,” Ryan said.

Mr. Ryan was of course speaking globally about the Administration’s impacts across the economy, but no sector has been more impacted by this unending assault has oil and gas. And almost three more years of this fun still to come.

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